Nothing Natural About the Natural Rate of Unemployment

By

Edmund S. Phelps

November 4, 2017

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Why is unemployment so low in countries where inflation remains subdued? For economists, this is a fundamental question. And when economists confront a fundamental question, fundamental disagreement often follows.

I was one of the rebel economists of the 1960s who rejected the macroeconomics we were taught in the 1950s — the “Keynesian” theory developed by J.R. Hicks, A.W. Phillips and James Tobin, according to which aggregate demand drove everything. High unemployment was caused only by deficient demand, and low unemployment...

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